Tag: bookkeeping

  • Financial Audit: Performing a Self-Audit on Your Business

    Financial Audit: Performing a Self-Audit on Your Business

    Many business owners wait until the next financial crisis before carrying out a financial audit.

    Making financial reports can be hectic and time-consuming. A lot of time is lost digging through records, receipts, and tax documents.

    Benefits of a Financial Audit

    However, performing a financial audit is crucial! It can help you reduce risks and evaluate little expenses that add up to damage your business.

    In one of Benjamin Franklin’s famous quotes, as seen on Forbes, he warned business owners to be wary of little expenses.

    So, what can you do to save your business? Precisely, how can you curtail accruing “little expenses”?

    The answer to those questions is to evaluate your spending through audits – internally or externally. If the expense attached to external assessments scare you, did you know you can do a self-audit?

    Read on to find out more of the benefits of a self-audit and how to implement it on your business.

    Eliminates Internal Theft or Embezzlement of Funds

    A thorough self-audit not only evaluates your financial documents, but reviews your company’s policies. If there is no threat of fraud, there might be loopholes in your company’s procedures.

    Luckily, a self-audit helps find those loopholes. You will also examine vital policies such as internal controls, record-keeping, protection against theft, and spending limits.

    Prepares You for Possible External Probing

    A self-audit reveals and evaluates crucial areas of your business. In this way, it safeguards you against external probing because you already know what and where to check to plead the case of your company.

    It Is Affordable

    Unlike external audits that require you to employ third-party agencies, self-audits are in-house. At most, you’d select a representative from all divisions of your company to form a committee. Think about it, will that cost you a dime?

    How to Carry Out Your Own Financial Audit

    • Find the Right Time

    Say that you run a winter clothing line. Conducting a self-audit between December and February is ill-advised. Why?

    Winter months are likely periods with massive sales in such a business. As such, any financial assessment during that time won’t be thorough.

    On the other hand, summer months are likely perfect for self-audits. In other words, you would likely have time to evaluate your financial documents with undivided attention.

    • Gather Your Financial Records

    Now gather all essential records such as bank statements, invoices, and sales receipts. After assembling the documents, send them to the accounting department for close evaluation.

    While you’re at it, review your accounting policies so that documents are promptly sent to the accounting department.

    • Review Your Record-Keeping Policies

    Additionally, look into your records retention practices. Do you store records adequately?

    If no, put a system in place that archives your canceled checks, cash register tapes, and invoices.

    Also, evaluate your policies on protection against theft. Is your accounting software password protected? Do you separate accounting duties amongst your employees?

    Lastly, analyze your tax records against the tax returns. Are there any non-correlating reporting or numbers?

    • Examine Your Cash Flow

    Say you spent below $2000 on logistics all through 2019. And in the first quarter of 2020, you’d already spent over $3000. When you find such alarming increases, query it. 

    And you should not stop there. Look at the percentages. What part of your business accrued expenses so much?

    The answers will help you build systems to cap spending for each segment of your business. 

    However, you don’t need to compare annual figures only. You could do more frequent audits. Monthly evaluations let you look at expenses such as data charges, service contracts, and logistics.

    With these tips, performing a financial audit is not as difficult as it seems. More importantly, these steps could help you find cash-flow leaks in your business.

    If you would like help with your financial audit, we would love to be of help! Contact us today!

  • Common Accounting Terms Explained

    Common Accounting Terms Explained

    Have you ever felt so confused after speaking with your accountant? If so, don’t fret! We’ve compiled different accounting terms and abbreviations along with their meanings. However, while this would do great for a business owner, it’s for anyone interested in building their accounting vocabulary. 

    Accounts Receivable (AR)

    Accounts receivable are lawfully enforceable claims for payments taken by a business for services rendered, or goods supplied that consumers have bought but not paid for. In essence, it is the money customers owe after goods or services have been provided to them. 

    Accounts Payable (AP)

    Accounts Payable is the amount of money a company owes creditors (suppliers) in return for goods or services they have provided. 

    Accrual (ACR)

    Accrual is a list of expenses a company has incurred or agreed upon but has not yet paid for. It is also a list of sales that have been made but not yet billed.

    Asset

    Asset refers to anything of monetary value that a company owns. It’s the wealth that has been accumulated and owned by a company without a loan or lien.

    These may be goods sold to customers, cash, investments, land, property, equipment and supplies, warehouse inventory, and more. 

    Bad Debt Expenses

    Bad debt is incurred when customers owing don’t pay up and are likely not to pay.

    Balance Sheet (BS)

    Balance Sheet is a snapshot of a company’s financial status, including assets, liabilities and equity at a particular time. The accounting equation when it comes to a balance sheet is: Assets = Equity + Liabilities. 

    Book Value (BV)

    When an asset depreciates, it loses its value. The book value shows the original value of assets.

    Capital (CAP)

    The amount of cash, goods, assets used to start up a company is called capital. You can calculate capital by subtracting the current asset from the current liabilities.

    Cash Flow (CF)

    Cash flow is the revenue expected to be generated by a company through business activities over some time after you made payments (e.g. rent, taxes) and received payments from goods or services sold to customers.

    Credit (Cr)

    Credit is an accounting entry that may either increase liabilities and equities or decrease the assets of a company’s balance sheet.

    Debit (Dr)

    An accounting entry that may either increase assets or decrease the liabilities of a company’s balance sheet depending on the type of transaction made. 

    Depreciation (DEPR)

    Depreciation occurs when business assets such as goods or equipment decrease in value over time due to use or abandonment.

    Dividends (DIV)

    These are distributions of the portion of a company’s earnings to shareholders of the business. It is usually issued as cash, property or stock market value.

    Expenses (EXP)

    Expenses show the cost incurred by a business to generate income or maintain business activities.

    This could be;

    • Fixed Expenses, like rent, workers’ salaries, paid at a scheduled period.
    • Variables: include expenses like labour costs that fluctuate based on the increase or decrease in production or sales.
    • Accrued: expenses which haven’t been paid yet.
    • Operating Expenses: These are expenses that are not directly associated with the production of goods and services. 

    Equity (EQ)

    Equity is the amount of money invested in the company by shareholders. This is usually the money left over after liabilities have been subtracted from assets.

    Fiscal Year (FY)

    A Fiscal year is a measured amount of time (usually 12 months period) that marks the beginning and end of the financial records of a company. The fiscal year doesn’t always correspond with the calendar year. For example, a company’s fiscal year can run from March to February.

    Inventory (INV)

    These are assets purchased by a company to sell to customers but remain unsold.

    Liability (LIAB)

    Liability is a debt a company has to pay. It includes salaries, taxes, the amount payable, utilities, loans etc.

    General Ledger (GL)

     General Ledger is the total record of transactions over the life of a company. 

    Gross Margin (GM)

    Also known as Profits, it’s the total number of sales made subtracted from the associated costs such as manufacturing costs, suppliers cost, etc. 

    Net Income (NI)

    Net Income is a company’s total earnings. You can calculate Net Income by subtracting total expenses from total revenues.

    Liquidation (LIQ)

    Liquidation happens when assets are converted into cash to pay off debts.

    Revenue (REV)

    Revenue is the sum of all the money generated by a company, usually through sales, before you subtract expenses.

    Return on Investment (ROI)

    ROI is calculated by dividing the net profit of a company by the total cost of the investment. This shows how successful an investment is by showing profits gained or loss.

    Variable Cost (VC)

    Variable costs changes as the number of goods that a business offers changes. These costs are the total marginal costs over every unit produced. For instance, if a business produces a commodity and sells more of those goods, it will need more raw materials to meet the increase in demand.

    Improve your accounting vocabulary today! It would be worthwhile to devote time to learn the terms mentioned above.  As you do so, apply these basic accounting terms in your conversation, and you’ll be amazed at how you’ll improve!  If you find any of them confusing or need help, contact us at Sound Accounts, because our strength is your numbers!

  • HOW TO PREPARE YOUR BOOKS FOR YEAR-END

    HOW TO PREPARE YOUR BOOKS FOR YEAR-END

    Year-end is usually the time to take stock and review the current year. For small businesses, it signals the completion of an accounting period – hence the need to put things in order in preparation for the next period. 

    As a business owner, you must close your books at least once a year to file an income tax and also prepare financial statements. Beyond this, it also helps you to know where your business stands financially. With that, you can make the necessary adjustments or changes.

    Below we’ve put together ten steps that you can follow to prepare your books for year-end. This will help every small business owner, especially the DIY enthusiasts who do their bookkeeping themselves.

     Reconcile your monthly transactions

    Reconciling your monthly transactions and bank statements are very vital. It makes preparing your books at the end of the year simpler and straightforward. Further, it makes you track every financial activity that occurs in your company. So, by year-end, you know what to expect. 

    Work toward sending 1099s

    These are tax forms from individuals or companies that your firm has made payment to. It could be for either rent or other services. You must file these forms with the IRS at the appropriate time. 

    This process requires you sending out IRS form W9 to these vendors and then recording the accurate information into your bookkeeping system in readiness for the next accounting period. 

    Take year-end inventory

    Be it physical products, supplies, or assets; you must take inventory, and then compare it to the value you have on your balance sheet. Ensure that there are no irregularities (missing or damaged items). If you notice any, make sure you record them accordingly.

    Record all payments from your clients

    You need to record all payments from clients as soon as possible. This helps you to keep an accurate record of all received payments and the outstanding ones, if any. It also makes it easy to balance your book at the end of the year.

    Print a year-end general ledger

    The YTD general ledger shows the opening and closing balances of your accounts in the year. It includes the total debits and credits as well as the net activity within this same period. You should always do a thorough check to ensure that all the transactions are posted to the correct accounts with documents to back them up. 

    Review your accounts payable and accounts receivable

    The essence of doing this review is to ensure that your accounts payable and accounts receivable are in order. Doing this could help you uncover some discrepancies. For instance, you could find invoices that you’ve already paid in accounts payable. 

    Or discover amounts in accounts receivable, whereas they have not been billed for. Try to access all the invoices and ensure that there are no pending payments. What your statements say should tally with the activities that have taken place.

    Reconcile all credit card accounts and statements

    Ensure that you sort out all expenses charged to a credit card and also make sure that they are dated correctly. Note that the expenses should be dated when charged and not when the statement is paid. 

    This means that it’s possible to charge expenses at year-end, have the statements come at the beginning of the next year, and still be able to capture the expenses in the current year.

    Go through your income statements

    After reconciling your transactions, you can view your income statements to see how your business has fared overall. This will include expenses as well as profits and deficits. You need to do this monthly, so you can spot irregularities before they escalate.

    Review your balance sheet

    A balance sheet reveals the current value of your business. In reviewing it, try to compare the present value to previous periods. It helps you to see the progression or decline as the case may be. Also, you need to look out for other irregularities and sort them out immediately. 

    Budget for the next year

    When you’re done with all the necessary checks and balances and have a clear picture of how things stand, you can then proceed with the following year’s budget. You must put every tiny detail into consideration while doing that, so you don’t get it wrong. Having a wrong budget will not only deny you profit, but it may also cause you to run on a loss.

    Preparing and closing your books for year-end should never be seen as a mere formality. It is something that every business owner must do to keep track of their business’s financials. Aside from helping you to prepare your books efficiently, the above steps will also make your general bookkeeping experience a pleasant one.

    If you would like assistance with closing your books or would like an analysis of your closing process, please contact us.

  • How To Check Up on Your Bookkeeper

    How To Check Up on Your Bookkeeper

    Bookkeeping is an essential part of a business. Unfortunately, many business owners tend to overlook it either due to carelessness or over-delegation of financial responsibilities. When the latter is the case, the individual(s) are in total control of the finances. Unfortunately, this can lead to financial fraud.

    This is why it is vital to check up on your bookkeeper. There are a lot of honest bookkeepers out there. But you can put measures in place to protect your business!

    Having gotten that out of the way, let’s now examine 10 ways you can put a check on your bookkeeper.

    Regular Checking of Accounting Application

    As a business owner, you must log in to your accounting application regularly. Ensure that you do a review on the financial activities happening in your company. You could do this on a daily or weekly basis, whichever one works best for you.

    It is best to do these checks after your bookkeeper has done the necessary updates. It makes it very easy to identify issues, if there are any.

    Consider Getting a Certified Public Accountant (CPA)

    Hiring a controller is always a good idea when it comes to tracking your records. But a CPA may be ideal for this. As a tax expert, a CPA goes beyond checking your bookkeeper’s work; they also handle your tax matters.

    A CPA will review your financial records thoroughly to ensure that everything matches up with your tax returns. Also, they help pinpoint deductions you may have overlooked.

    Ensure There Is Good Documentation

    Receipts for purchases made by the company must be kept. A bookkeeper may ask for them, but won’t likely keep these documents. Reconciliation and balancing of books most times require these documents.

    If they are not available, there could be expenses that are not accounted for. Some apps can fetch receipts automatically. You can use them for this purpose.

    Set up Security Protocols

    An excellent example of this is countersigning. Ensure that all checks require two signatures. Don’t sign blank checks in advance and leave them under the care of the bookkeeper. It is also essential that you examine every check before you sign them. Don’t sign in a hurry; you could be signing away your company without knowing it!

    Monthly Review of the Financial Statements

    Your financial statements help you to track your business performance. How is your business faring as compared to the last month or year? What modifications do you need to make? It is challenging to make changes when you don’t have a good knowledge of your company’s numbers.

    You’ll most likely be making guesses and thereby hurting your business. The bookkeeper should be able to give you a detailed report of everything on the statement. When everything checks out, you can “close” the books and don’t make any changes after that.

    Attach Scanned Images to Each Transaction.

    They help to give a clear and transparent representation of every transaction. It eliminates the issue of check tampering. A tampered check may mean that a bookkeeper has diverted funds without the company’s knowledge or approval.

    Have Access to Your Bookkeeper’s References

    Your bookkeeper has access to your finances and bank accounts. You need to have a way of getting to them in case of trouble. Requesting your bookkeeper’s references during the hiring process shouldn’t be a mere formality.

    You need to have reputable people vouching for them before you hire them. Also, make sure you have ready access to these references. It’ll go a long way to keep your bookkeeper in check.

    Have Regular Meetings with Your Bookkeeper and Ask for Reports

    You should have a regular discussion with your bookkeeper. They should bring you up to speed as it concerns the company’s finances. Also, ensure that what they tell you matches what is on the books.

    To this end, ask them to send daily or weekly reports. These reports will serve as a guide when you’re checking the books. If there are discrepancies, ask for an immediate explanation. 

    Make Sure Their Office and Computer Are Secure

    Bookkeepers handle very vital and delicate information, which mostly involves your finances. It is essential that they have a secure office or computer where they do their work.

    Your company’s records could fall into the wrong hands by so doing. These could include information about your bids, estimates, as well as profit and loss. You already know the implication of this.

    Outsource Your Bookkeeping

    There are professional firms that have excellent protocols in place – protocols that can eliminate dishonesty. It’s worth it to outsource your bookkeeping to any of such firms. It saves you the stress of having to check your bookkeeper.

    You also have access to all your records 24/7. All you need to do is access your QuickBooks online database and get the information you need.

    We hope that you find these 10 tips helpful. Bookkeeping is something you should never take for granted. Keep a close eye on your finances. The success or failure of your business depends on it.

    If you want more information on outsourcing your bookkeeping, please contact us today!

  • COMMON BOOKKEEPING MISTAKES

    COMMON BOOKKEEPING MISTAKES

    Data from the United States Small Business Administration show that about 50% of every new small business in the United States will fail within the first 5 years. So why do small businesses fail? Bad financial management.

    Good financial management begins with knowing some key rules of bookkeeping. From small businesses to big corporations, bookkeeping is a vital part of any business effort. Although it’s typically not the best job, your business needs bookkeeping services to succeed. After all, errors can cost your business significantly.

    Small businesses often make bookkeeping errors in their first years of operation, due to the lack of knowledge concerning correct accounting procedures. If you don’t have the money, time, or wish to become a certified bookkeeper, you can avoid some key pitfalls, which can impact on your business’ bottom line.

    So here are some common bookkeeping mistakes made by small businesses — and how to prevent making them.

    Doing it Yourself

    We only have 24-hours daily. So as a small business owner, you need to ensure that you’re filling them with just the most vital tasks. Although managing money is absolutely an important task, you don’t need to do it yourself.

    In actuality, if your bookkeeping and accounting skills aren’t strong, it’s best you hire someone to do it. Delegating this job to an expert will help you cross check for errors. Also, it gives you time to work on your business – and not in it.

    Employing the Wrong Accounting Method

    There are two principal business accounting methods: accrual and cash. The accrual method is simpler since it’s founded on the actual flow of money in and out of your business. The cash accounting is used essentially by sole proprietors without any inventory. That said, the accrual method documents expenses and income as they happen.

    As your business grow and get more complex, you should change to accrual accounting. This method makes it easier to match income to expenses correctly. Otherwise, your business might appear profitable during periods with some expenses and profitless during months with huge expenses, without understanding the difference.

    Failing to Monitor Reimbursable Expenses

    Often, small business owners pay for purchases with their credit card. After paying, they fail to follow these expenses.

    In essence, don’t mix business and personal spending. Keep your business and personal finances separate always. We advise small business owners to open a company checking account and keep business income into the account.

    Next, get an accountant to devise an income management strategy directing how money is removed from your business. The following factors will drive your income management strategy:

    • The profits that need to be reinvested back into your business
    • Your long-term personal financial plan.
    • Your annual cash flow needs

    Not Negotiating Vendor Terms

    A lot of small business owners often buy items from the same vendor always. If you do this, it’s essential to build a relationship with your vendors. Even if the purchases are little, always call and ask questions. Also, you can bargain longer payment terms or reduced pricing, allowing you to maintain more cash flow

    Not Keeping Hard Copies of Records

    In a world of Internet banking, several small business owners feel comfortable depending on the Internet to safeguard their records. Although going paperless is a no-stress and an eco-friendly option, always keep hard copies.

    Most banks only allow access to these records for some months. As a result, you may come up short if you wait till tax time to reconcile your bank statements.

    Lack of Communication

    Bookkeepers can do their job effectively if they’re filled in and briefed on every financial transaction. A common mistake is paying someone without reporting it or getting supplies and not giving the bookkeeper the necessary information or receipts.

    The Bottom Line…

    You can avoid these costly bookkeeping mistakes. Prepare accordingly and watch out for warning signs. When in doubt, get the right information, know the right bookkeeping rules, and ensure that your books are accurate all year-round.   If that all seems like too much work, please contact us today!  We are here for your bookkeeping needs.

    Your final balance sheet will thank you.

  • Unfiled Tax Returns

    Unfiled Tax Returns

    A non-profit came to us one day because they received a bill from the IRS for over $120,000 plus penalties and interest for failure to file their tax returns.  They were in a panic and had no idea what to do.  This is where we stepped in.

    The Issue

    This non-profit thought they had been compliant.  That is, until they realized their treasurer had been stealing money from them.  Additionally, they had no idea that the treasurer hadn’t been filing the non-profit’s tax return for the past three years.  Per the IRS, “the maximum penalty for any return is the lesser of $10,000 or 5 percent of the organization’s gross receipts for the year.  For an organization that has gross receipts of over $1 million for the year, the penalty is $100 a day up to a maximum of $50,000.”

    The Plan

    First, we knew we had to work quickly.  We had to get all their information into a QuickBooks file so that we could produce financial statements.  Then we had to have a tax preparer utilize those statements to file the past due tax returns.  Lastly, we had to put together a letter explaining the situation this non-profit was in and their plan to keep this from happening in the future.

    The Work

    We quickly started putting together their numbers for the years they had not been compliant.  This was not an easy task as they did not have all the information readily available.  They had to go to their bank and request paper copies of their prior year bank statements because they were no longer available to download online.  They also had to speak to their bank and request copies of checks that were written because they had no idea what some of their expenses were.  Once we had all the information together, we entered it into QuickBooks and produced financial statements.

    The Wait

    As soon as we had everything together and handed it off to the tax preparer, we put together the letter explaining the situation the non-profit was in and the systems they had in place to ensure future compliance.  Our letter also outlined the financial situation this penalty was putting them in and asked that the penalties and interest be waived.  We knew that the IRS might not be so lenient, but we had to ask as trying to pay this amount would surely put this non-profit out of business.  Once our CPA put the tax returns together and sent them in with our letters, all we could do was wait.

    The Outcome

    Several weeks passed without any word from the IRS.  Then, approximately two months later, our non-profit client called us.  They were giddy with excitement!  They had just received a letter from the IRS informing them that all fines, penalties, and interest had been dropped.  The non-profit owed nothing to the IRS.  They couldn’t thank us enough!  So, if you find yourself in a situation with the IRS, give us a call.  We would be more than happy to help you work your way through these issues and we have an amazing CPA that we partner with to take care of your tax issues.

  • Mistakes to Avoid

    Mistakes to Avoid

    It can be difficult to monitor and measure a growing business.  With added growth, your reports can become more complex, making it even more important that you avoid certain mistakes.  Below, we discuss some accounting mistakes you can avoid to keep your finger on the pulse of your business.

    Skipping Routine Accounting Tasks

    More often than not, a business owner has just been too busy to take care of their accounting needs and has to call us for help.  Nothing has been reconciled or even recorded for months on end, they’ve reached a tax deadline and they are in a panic.  While we don’t mind taking on projects such as these, it’s much easier on our client’s stress levels if bookkeeping is done on a routine basis.

    We understand that business owners are strapped for time.  However, doing all of the bookkeeping in a rush can lead to errors that will take far more time to untangle later.  Unreconciled bank accounts can be one of the issues that lead to these errors.  There are many times when small costs or expenses simply don’t get recorded in accounting software.  Reconciling your accounts with your bank allows you to catch these expenses, making sure that your software is accurate.

    Lastly, we see clients who simply record deposits as they are received instead of applying payments to open receivables.  This also leads to incomplete or incorrect software data and could lead you to send a past due statement to a client who has already paid their bill.

    Assuming Profits Equals Cash Flow

    Cash is king!  Every business needs sufficient cash flow to continue operating on a daily basis.  Unfortunately, many clients do a poor job forecasting expected cash flows.  For example, a client closes a deal for $50,000.  Expected expenses for this project are $20,000 leaving the client to believe they’ve just made a $30,000 profit.  Sadly, this isn’t always the case.  Could the project run over time?  What if the client pays late?  Maybe expenses are unexpectedly more than $20,000?  Each of these factors will impact the amount of cash flow available to the client at any time.

    Our company offers a regular cash flow report.  The formula we use is:

    (Current bank balances + anticipated Accounts Receivable)  – (uncleared/unpaid expenses + payroll expenses + budgeted expenses) = Cash Flow

    Most of our clients forecast their cash flow on a monthly basis, looking forward to the month ahead for anticipated expenses and income.  This helps them properly prepare for the month ahead.

    Not Saving Receipts

    Having a perfect expense report is great.  You feel good that you’ve recorded all of the little transactions into your software.  Then, you are audited by the IRS; without receipts, your expenses reports are useless.  Receipts are the proof that the IRS needs that you really did have a business meeting over dinner and that you didn’t just take your family to dinner on the company’s dime.

    Not Backing Up Accounting Software

    So far this year, I’ve helped three clients who needed to rebuild their company files.  Why did they run into this issue?  They made the mistake of backing up their software to an external hard drive or cloud solution.  One system crash or error can be all it takes to wipe out your files and all of your company data.

    I recommend that all of my clients schedule routine backups of their software.  My recommendation is that it should be backed up each time it’s touched.  If you or your staff is working on the software daily, back it up each night at 1 or 2 in the morning when nobody is working on the file.  If you only touch it weekly, set it up for a weekly backup or to back up each time you close the file.

    Backups need to be stored on an external drive, a server designated for the task, or to a cloud solution.  Backing up these files to your computer that stores the accounting software is almost as dangerous as not backing up at all.

    Doing Too Much Yourself

    We get it.  You’re a small business owner with limited revenue.  Doing the bookkeeping in-house seems a great way to keep costs low.  Sadly, this often ends up costing the company more money in the long run.  A knowledgeable bookkeeper will be able to manage your software and data much faster than you can.  Your job is to run your business.  This means it is often worth it to spend a few bucks to make sure that your books are done correctly the first time rather than spending hours trying to figure out how to correct an error you made.

    Not Planning for Inventory

    If your company sells product, it must stay on top of its inventory.  Businesses that don’t manage their inventory risk sales loss if product is not available.  Therefore, companies with product must plan to have product on hand at the end of the month to fill customer needs the first few days of the following month.  A simple formula for this is:

    Beginning inventory + purchases – sales = ending inventory

    If your company projects it will sell 200 widgets in February, your beginning inventory in on February 1 was 50 widgets, and the company wants 30 widgets in inventory at the end of February, the formula would be:

    200 projected widget sales + 30 ending inventory – 50 beginning inventory = 180 purchased

    This means that, in order to meet projected sales and to have 30 widgets on hand at the end of February, the company must purchase 180 widgets.

    Mismanaged Debt

    Companies can get money to operate their businesses in a few ways.  You could sell shares of your company by issuing stock or borrow money and take on debt.  If a company decides to take on debt and doesn’t monitor the amount of debt borrowed over time, they may run into difficulties repaying that debt.

    To monitor this, we suggest a formula called the debt-to-equity ratio.  This formula is:

    Total debt / company equity

    In many instances a typical ratio is 2 to 1, or $2 debt to every $1 of equity in the company.  Firms with a ratio of 3-to-1 or 5-to-1 may see this as a red flag that their debt is becoming unmanageable.

    Take a Deep Breath

    If you find that you are making these mistakes with your company, relax.  Sound Accounts is here to help you either get organized or by taking over your bookkeeping so you can do what you do best; run your business!

  • Payroll Pitfalls

    Payroll Pitfalls

    Payroll calculator

    While working on my degree, one of my accounting classes talked about payroll.  We also learned how to calculate paycheck withholdings.  This transaction has a well defined formula; the steps are straightforward.  I didn’t understand why would it ever be an issue for anyone.  Then I started talking to friends that ran their own businesses and the difficulties became clear.

    Payroll Rules

    Many cities and counties are drafting their own regulations surrounding minimum wage, paid time off, and overtime.  The uncertainty of how these laws apply to individual businesses, can make compliance a nightmare.  As a result, the laws that apply where the business is located may not always pertain to your employees.  This is especially true if services are provided in other cities.  These challenges make it almost impossible for a business owner to do the right thing.

    Local Changes

    In the last few years, we have seen cities in Washington making some of these changes.  Seattle and Tacoma were some of the first to vote in paid time off and minimum wage laws specific to their cities.  In the upcoming year, however, our state lawmakers have added another layer of confusion to the issue by adopting their own rules surrounding paid time off.  The Labor and Industries Department will be holding webinars over the next few weeks to make sure that business owners are fully informed of these changes.

    Let Us Help

    If you are feeling overwhelmed, or just want to ensure that you are compliant, give Sound Accounts a call.  We make it our job to stay up to date on the most recent changes in rules and regulations.  In fact, Sound Accounts will be attending one of the webinars put on by Labor and Industries to do just that for our clients.  We can then review your records to ensure compliance and free you to do what it is that you do better than anyone else: being the reason your customers are keeping you busy.

  • Outsourced Books

    We Make It Easy

    Bookkeeping is moving farther away from desktop computing and deeper into the cloud.  This means that there’s no reason to have an in-house employee managing the day-to-day transactions of your business.  Additionally, outsourcing can tighten a company’s budget while maintaining high quality bookkeeping.  Our list below explores a few reasons why you may want to outsource your bookkeeping and accounting functions.

    Save Money and Reduce Overhead

    Hiring an in-house bookkeeper can significantly increase your expenses.  Outsourcing your bookkeeping, however, can save as much as 62% from your bottom line when you no longer must worry about their salary, payroll taxes, or benefits.  Additionally, you will save on training, software, hardware, and office supplies.

    Save on Technology Costs

    Outsourcing means you don’t need to buy costly hardware or software for your bookkeeping needs.  A good bookkeeper will have access to the most up-to-date software and will have the expertise necessary to properly use those tools to assist your business.

    Automate and Reduce Paper

    You can lower your carbon footprint!  Hiring a bookkeeper who can access your files online will reduce paper and toner use as well as use of your copier, fax machine, and your printer.  Less filing and storage of hard copies will also free up your time.

    Focus on Growth

    When you are running a business, it’s important to keep growing.  Unfortunately, when you are spending time on your bookkeeping, those are minutes you aren’t spending growing your business.  It’s also likely that, unless you have an accounting degree, a bookkeeper is going to manage your transactions far more efficiently than you can or may even want to.  Your accounts receivable, accounts payable, manage vendor relationships, issue financial statements, payroll can all be handled by your outsourced accounting team.

    Access to Financial Metrics

    Most bookkeepers will do more for you than just enter your daily transactions and give you an update on the business health each quarter.  Ask your bookkeeper questions about your business on a regular business so that they can provide you with the types of reports you need to see to make sure you are progressing financially.

    Gain an Outside Perspective

    Internal employees are often loyal to the company they work for.  This may make it difficult for them to deliver less than positive news to the boss when they see something going wrong or a negative financial trend.  Outsourcing your bookkeeping means bringing in a neutral third party who will not hesitate to let you know when your financial health is going sour.

    Reduce Fraud

    There are three main components that, when combined, often lead to fraudulent behavior.  These components are: perceived unshareable financial need, perceived opportunity, and rationalization.  According to a study released in 2012 by the Association of Certified Fraud Examiners, small businesses are the most common victims of fraud.  When a small business does not have access to a competent controller, they are more likely to miss abnormal activity occurring within the transactions and billings.  However, when small businesses outsource these functions to bookkeeping experts, one of the legs of the fraud triangle is removed – opportunity.

    Scalable Options

    Growing your business or identifying areas to reduce spending becomes much easier with outsourced bookkeeping.  Your bookkeepers can give you feedback and suggestions to assist you with increasing your profits.  Bookkeeping and accounting firms also have teams of people available to work on your account.  If you ramp up production, you don’t have to worry about hiring additional staff to manage the added bookkeeping tasks.

    Better Tools

    It’s difficult to stay on top of the latest software.  However, that is exactly what your bookkeeper needs to do.  They will have access to the most updated bookkeeping software and apps.  Having to consistently upgrade these powerful tools for an in-house accounting team could become cost prohibitive.

    Peace of Mind

    No business owner should leave their finances to chance.  Utilizing an expert who handles your account with integrity and honesty allows you to focus on growing your business.  You will need to manage and monitor in-house accounting teams.  However, the bookkeeping contractor must make sure the work is done properly and on time.

    For more information, contact us for a free consultation!